Bachelor Thesis. Bitcoin s Potential to Become the World s Currency

Transcription

1 Bachelor Thesis International Economics & Macroeconomics Bitcoin s Potential to Become the World s Currency An Analysis Using the Denationalisation of Money - Framework submitted by Hauke Hauschildt University of Paderborn Faculty of Business Administration and Economics International Economics & Macroeconomics Preparation Time: May 1, 2012 until August 1, 2012 Paderborn, July 27, 2012

2 Abstract This dissertation introduces and analyzes the digital currency Bitcoin. This currency was introduced by Satoshi Nakamoto in 2008 and the first units were issued in January of The virtual currency has been discussed in the media ever since because of its unique system. The dissertation highlights the most important features of the monetary model surrounding Bitcoin. A decentralized system is supposed to guarantee full anonymity for every user. In addition, the currency is not backed by any government or other institution, but it relies on the faith of every user that Bitcoin will succeed in the future. In addition, the received value of a unit of Bitcoin is discussed as well as its legal issues. Moreover, this bachelor thesis analyzes Bitcoin s potential to become one of the major currencies by comparing it to a paper of Friedrich August von Hayek which is called The Denationalisation of Money: The Argument Refined. In this paper, Hayek explains his idea of a perfect monetary system. He proposes the co- existence of privately issued currencies through banks.

3 iii Table of Contents 1 Introduction Topic Motivation and Objective Layout of Dissertation Literature Overview Definitions Bitcoin: A Virtual Currency Introduction The System Security / Anonymity Decentralization / Transparency Obtaining Bitcoins Mining Offer Commodities or Services Trading Bitcoins Bitcoin s Acceptance / Confidence Value of Bitcoins Exchange Rate Value Theories Subjective Value / Use Value Labor Value Intrinsic Value / Inherent Value Conclusion Deflationary Spiral Legal Issues Is Bitcoin Money? Hayek s Monetary Policies Competition / Private Currencies Decentralization Volume Mining Deflation / Inflation Hoarding Conclusion Bibliography... xxxvi

4 iv Table of Figures Figure 1 Projected Supply of Bitcoins Page 13 Figure 2 Bitcoin network: total computation speed Page 17 Figure 3 Bitcoin Transactions Page 19 Figure 4 Exchange Rate of Bitcoins on Mt. Gox Page 21 Figure 5 Number of Stores Accepting Bitcoin Page 23

5 v List of Tables Table 1 Weighted Exchange Rates of Bitcoin Page 22

6 vi List of Abbreviations ATM BTC e e.g. et al EU Ibid i.e. MIT OECD p US Automated Teller Machine Abbreviation for the currency of Bitcoin Electronic For example And others European Union Ibidem / the same place Id est / that means Massachusetts Institute of Technology Organization for Economic Co-Operation and Development Page United States

7 7 1 Introduction 1.1 Topic The main focus of this thesis is to analyze a new virtual currency named Bitcoin, introduced in 2008, and to see if it can act as a denationalized international currency according to the ideas of the Nobel Prize winner Friedrich August von Hayek by embodying ideal money. 1.2 Motivation and Objective The OECD published a report named The Future of Money in In this paper the authors claim drastic changes regarding monetary policies and their implementations, such as variations in the kinds of currencies as we know them today. Some of these changes have already been accomplished, others still may occur in the near future. As globalization continues to develop, there is a rise in the need for a global currency. The Euro, a multinational currency, lowered transaction costs throughout Europe, while the importance of trade unions within certain regional economic areas is increasing. Trade becomes even more important because of regional economic integration such as the EU, other free trade areas around the world and globalization. With this process in mind, people are looking for an international form of money that inspires the greatest confidence and can perform fully all of money s primary functions (Miller et al, 2002, p. 12). This kind of money will, according to the authors, dominate the market. Miller suggests that a universal system should be established in order to provide access to a digital money account. Nowadays, the technological possibilities for such digital money are endless because they offer potential for the introduction of new payment methods. Several internet pioneers throughout recent history presented different approaches on how such a virtual currency and its monetary system may look like. As mentioned, only the one with the best features and performance is most likely to succeed.

8 8 As it will be discussed later, Bitcoin is based on a peer-to-peer 1 network. There are many obstacles to realizing this type of peer-to-peer digital money that is ne[t]work based, transparent, easy to use and highly secure. The difficulty most often raised when considering this trajectory is the contention that network transactions will never be able to acquire the virtues of anonymity, accessibility and security that characterize hard cash. (Miller et al, 2002, p. 18) Bitcoin is one of the virtual currencies that try to take on these challenges because of its complex setup. However, the success of it depends on if there are major advances in the ease, cost and certainty with which digital transactions are handled (Miller et al., 2002, p. 19). Looking at older statistics, the future for Bitcoin does not look very bright. A MIT survey reported that by 1999, 50 e-money startups had in fact failed as businesses (Tumin, 2002, p. 74). Tumin summarizes that recent introductions of digital currencies have failed because of resistance in the marketplace, which was shown by a small number of users that accepted such a currency. However, emerging opportunities presage the possibility of new payment products that target inefficiency, cost, and risk in current payment products and systems (Tumin, 2002, p. 83). Therefore times have changed and a new digital currency may have the potential to succeed. Friedrich August von Hayek, an Austrian economist, supported the idea of new currencies in his book Denationalisation of Money: The Argument Refined in I am also convinced that if a new generation of young bankers were given the opportunity they would rapidly develop techniques to make the new forms of banking not only safe and profitable but also much more beneficial to the whole community than the existing one. (Hayek, 1990, p. 93) 1 Peer-to-peer: An Internet activity where users collaborate without the use of any intervening servers (Ince, 2009).

9 9 The aim of this dissertation is to analyze if the new virtual currency Bitcoin has the potential to become one of the most accepted international currencies and also if it meets the requirements of Hayek s proposals stated in his book. Currently, there has been very little academic research done regarding the economics of Bitcoin, due to the fact that it has been introduced just recently in Layout of Dissertation The first part of this dissertation explains the virtual currency Bitcoin and its monetary system. After a brief introduction, several key features of the money are clarified. In the second part, the setup of Bitcoin will be analyzed to see if this system accords with the key proposals of Hayek. The methodology that is being used to finalize the hypothesis is a theoretical comparison of the given literature and its monetary model to the concept of Bitcoin. This analysis illustrates the main part of the dissertation and will allow answering the research question. Furthermore, the findings will be supported by different statistical data. For instance, the field data of the number of Bitcoins being transferred in retrospect to the sum that has been issued until that point of time will show the degree of acceptance of the currency. Additional graphs explain the history of the exchange rate of Bitcoin, which is an indicator for the development of the value of the currency, and thus its stability. Taking all this data and the comparison of the models into consideration, I am able to finalize my hypothesis in seeing if Bitcoin has the potential to become the world s currency. However, this dissertation does not focus on the technical standards and their implementation in the monetary system of Bitcoin. 1.4 Literature Overview As mentioned, very little academic research has been conducted regarding Bitcoin s economic side. Reuben Grinberg, a law expert who graduated from Yale Law School, analyzed Bitcoin s sustainability as a currency and its legal issues. He outlined that a purely digital currency can be sustainable without being backed by a commodity or institution like ordinary currencies (Grinberg, 2011, p ).

10 10 Hayek (1990) describes in his paper the key aspects of his idea of a perfect monetary system and its currencies. The Nobel Prize winner idealized that several denationalized currencies co-existed with distinct features. This system would lead to stable monies and a higher-quality monetary system that would benefit everyone. This concept would lead to free banking and therefore a free money market. Bitcoin embodies an example of a currency in a free banking system because it is completely decentralized and represents a different currency next to many others (Grinberg, 2011, p. 4). The aspect that is the most interesting about the currency is the setup of issuing additional Bitcoins to the community and its users. In fact, the monetary policy is based on the concept of monetarism, which was founded by Nobel Prize winner Milton Friedman in In his book, the author clarifies why a pre-set and limited number of issued quantities of a currency per period of time will most likely bolster the stability of that money (Cagan, 2008). This is the reason why the founders of Bitcoin have adapted this particular system for their currency and it is now to be shown if the predicted outcome regarding its stability turned out as desired. 1.5 Definitions Several definitions are vital for understanding this dissertation: A monetary system is the system that is used by a country or region to provide the economy with money for internal use and to control the exchange of its own currency with those of foreign countries (Law & Smullen, 2008). In addition, a monetary system describes the method of how monetary policies are implemented. The term denationalization or decentralization describes, in regard to this dissertation, the removal of government ownership or control regarding a monetary system (Black, Hashimzade & Myles, 2009). Part of a monetary system is a currency, which is another name for money. These terms are defined as a medium of exchange and store of value. This may consist of physical objects, such as notes and coins; or of book or computer entries, such as bank deposits (Law & Smullen, 2008). Most of today s monetary systems use fiat currencies as their legal tender. These monies are currencies whose status derives from legal en-

11 11 actment [ ]. Fiat money is legal tender in that the law will recognize the offer of such money as evidence of intention to settle debt (Calhoun, 2002). Therefore, fiat money on its own does not have any value by its intrinsic value 2 or the guarantee that it can be converted into gold or another currency. In contrast, other currencies are known as commodity currencies. These types may be gold or other raw materials and have value as a commodity even outside its legal declaration as tender (Calhoun, 2002). Thus money can be exchanged for these valuecarrying commodities. This dissertation focuses on the virtual currency or digital currency named Bitcoin. Both of these terms are interchangeable. According to Goldfinger (2002, p. 104 / 105), the European Commission released in September 1998 a proposal regarding the definition of such currencies. It defines e-money (also: digital currency) as a multi-purpose instrument. This definition leads to a broader and more ambiguous definition of the issuer of electronic money. A non-financial institution, a retailer or an Internet service provider that issues an electronic instrument appropriate for several types of transactions (buying physical good with selected merchants, buying intangible goods such as information, [ ] ) can thus be considered as an electronic money issuer (Goldfinger, 2002, p. 104 / 105). Therefore, the generic term virtual currency describes any form of money that is stored and moved over computer systems and data networks (Tumin 2002, p. 104). 2 Bitcoin: A Virtual Currency 2.1 Introduction Bitcoin is a virtual currency that was introduced in 2008 by Satoshi Nakamoto, who coded the peer-to-peer software through which the electronic currency can be traded. Because of its setup, the currency is decentralized, partially anonymous, not backed by any government or other legal entity, and not redeemable for gold or other commodity (Grinberg, 2011, p. 160). It is highly controversial if these aspects can be seen as positive or negative for a currency. 2 Intrinsic: Inside, or belonging to something by its very nature. (Park, 2007).

12 12 During the early stages of the money, Bitcoin was hardly known or popular. However, throughout its short history, several occurrences, e.g. releases of newspaper articles, boosted its popularity. This resulted in higher amounts of traded Bitcoins 3 and higher, but alternating, values against the US- Dollar or the Euro. 4 It is possible for any individual to become part of the Bitcoin community by installing a client on one s computer or alternatively by registering on certain websites 5 that run these clients for their users. All digital units of this currency are stored in an electronic wallet, which is essentially a file that can be saved on any kind of electronic storage media such as hard drives or flash drives (Grinberg, 2011, p. 163). When units of Bitcoin 6 have been obtained, one may purchase services or commodities at different locations or on the internet 7 through a payment system. Developers have also released a Smartphone application that allows payments onthe-go (Grinberg, 2012, p. 27). In addition, an individual named Mark Suppes bought an old ATM and converted it so that it is able to give out cash for Bitcoins (Wallace, 2011, p. 3). 2.2 The System The currency was designed on a cryptographic 8 basis, which enables it to be completely decentralized. According to Grinberg (2011), Bitcoin can be an ideal currency for mainstream consumers and merchants because of its system: Bitcoins are highly liquid, have low transaction costs and can be sent quickly across the internet to users anywhere in the world (p. 160). Nakamoto had the idea that even a digital currency needs to be created by work. This resolved into the process of mining, which will be explained in detail in section This model is based on the old gold standards when gold had to be mined, which guaranteed a rather scarce asset. Because of its scarcity, gold is 3 See section 2.6 Bitcoin s Acceptance / Confidence. 4 See section 3.1 Exchange Rate. 5 Blockchain, StronCoin, Flexcoin, Instawallet, Easywallet.org, Paytunia. 6 See section 2.5 Obtaining Bitcoins. 7 A full list can be found on 8 Cryptography: The art of writing or solving codes (Book, 2001).

13 Total Amount of Bitcoins in Millions 13 comparatively very high valued throughout its entire history. At the moment, approximately fifty Bitcoins are issued every ten minutes and every four years this number will halve. In addition, the creator decided on a total supply of 21 million Bitcoins (Grinberg, 2011, p. 163). 20 Projected Supply of Bitcoins Year Figure 1, Own Graphic Source: Data from [last accessed: June 19, 2012] Bitcoin s setup is partially based on the concept of monetarism, which was mainly founded by Milton Friedman. 9 He proposes a controlled growth rate of the supply of a currency to guarantee long-term stability regarding the value of a currency. This computer-controlled monetary system and the advances in computer technology have led to the creation of an actual elastic quasi-commodity currency 10 (Selgin, 2012, p. 19). However, he summarizes that over time it will turn into inelastic quasi-commodity money because the creation rate of units will eventually decline to zero. Once Bitcoins are created 11, they can be transferred to other Bitcoin users as a payment through the peer-two-peer system. A transaction is free of charge; however, it is possible to add optional BTCs as a payment for the individual that pro- 9 See: A Monetary History of the United States of America, by Milton Friedman and Anna Schwartz, Elastic currency: Currency that can [ ] expand or contract in amount warranted by economic conditions. (Fox et al., 2005). 11 See section Mining.

14 14 cesses the transaction with his or her computer. Nevertheless, once a transferal has been completed, it is irreversible. Several websites offer the possibility of a currency exchange with Bitcoins. The current exchange rates of the most popular service Mt. Gox 12 can be seen in section Security / Anonymity If an individual wants to start using Bitcoin, one does not have to go through a registration process. In addition, an address is not required, and a user name and password are also not required to begin sending coins to other users (Elias 2011, p. 7). Grinberg (2012) explains, that every Bitcoin account is pseudonymous, which can only be identified by by long random strings of letters and numbers such as 1Het2qD6Yab9vaLUs3JrM1aYMXNSJ42Rdc (p. 25 / 26). Because of this method, using Bitcoins is as private as cash, as long as the user does not reveal his or her account and the name. Every financial transaction that is being processed through the Bitcoin network is secured by using public-key encryption (P., 2011a). The system generates two keys that are mathematically related to each other in a certain way so that the encrypting key cannot be used to decrypt a message and vice versa. The user receives one of the keys, the private key, the other one is broadcasted publically. If someone wants to transfer Bitcoins to this user, he or she has to enter the public key, which is linked to the recipient s user account. The public key encrypts the payment and only the designated user can decrypt the transaction with his or her private key. At the same time, the payer has to approve the transaction with his or her private key. If it is desired to enhance security even further, any user may create as many of these public addresses as he or she wants. This can even be done for every single transaction (Elias, 2011, p. 7). 2.4 Decentralization / Transparency The setup of the digital currency named Bitcoin does not require the existence of any intermediaries or banks for processing the financial transactions. Essentially 12 See:

15 15 the Bitcoin community can be seen as one bank and all users contribute their work and effort towards a system that allows fast, inexpensive and anonymous Internet-based financial transactions (Grinberg, 2012, p. 22). This becomes possible through the peer-to-peer technology in which all transactions are processed by the whole network of users collectively. All handled trades are communicated through all Bitcoin programs in existence. This allows anyone to see the transactions affecting any particular account on a Web site. 13 As Grinberg summarizes, this transparent system does not violate the principal rules of Bitcoin because the transactions data cannot be linked to account owners easily. Additionally, the decentralized system offers another advantage: Hackers cannot effectively attack the actual Bitcoin system. The reason being: Penetrating even a large number of Bitcoin programs would have little effect on the network as a whole (Grinberg, 2012, p. 24). Therefore, the system and its software stabilize itself by integrating every single user into one community throughout the entire peer-to-peer network. Additionally, the system is designed so that any individual may join the community if he or she pleases to do so because the community cannot reject any new users. If the community wants to make changes to the system, it has to be a majority decision (Cap, 2012, p. 85). This guarantees a stable system that acts in the interest of the users. Nevertheless, the current monetary system of Bitcoin includes flaws. Having no central bank that controls all financial movements, the system does not allow borrowing and lending. It would be against Bitcoin s ground rules to install a bank or intermediary to make these options possible. In addition, up to this point there is no institution that would act as the lender of last resort if a bank or intemediary would get into turmoil because of miscalculations (P., 2011b). 2.5 Obtaining Bitcoins Mining The idea behind Bitcoin is that new units of the currency are created by competing miners. This term describes users who make use of their own computers to 13 See:

16 16 generate solutions to problems that help ensure the integrity and security of the system (Grinberg, 2011, p. 163). A software, called the Bitcoin miner, validates all financial transactions that are being sent throughout the Bitcoin community. By the process of mining, users therefore actually facilitate Bitcoin transactions by verifying transactions and securing the block-chain, which is the comprehensive history of all Bitcoin transactions (Elias, 2011, p. 6). The actual process of mining can be seen as a proof of work. Users install the Bitcoin miner on their computer and the software instructs the computer s hardware to start solving complex problems. These mathematical problems are called hashes 14 and are produced by an algorithm. The user s computer begins the intensive brute-force 15 method to find a solution for the hashes. Once the hash is solved by a miner, the block is considered solved and the reward is dispersed to the miner who solved the hash, in the form of the first transaction at the beginning of the next block (Elias, 2011, p. 6 / 7). According to Elias, the setup of this system offers revolutionary solutions to two pre-existing difficulties: 1. It does not allow double-spending 16 of a Bitcoin because the system keeps a cryptographically secure record of all financial transactions. In addition, all these transactions are verified by the entire Bitcoin network. 2. It solves the problem of determining representation in majority decision making, that being, which chain of transactions to trust (Ibid.). Nevertheless, the programmers included another significant factor into the system of Bitcoin. They decided that, as the number of active miners in the network alternates, the difficulty of the algorithm adjusts reciprocally. In other words, if there is more computational power working on a problem, the difficulty increases and vice versa as it can be seen in figure 2. This system ensures that the amount of Bitcoins created is according to the predetermined rate. This mining process is designed to mimic the extraction of raw material or minerals. As the most acces- 14 Hashing algorithm: An algorithm that, for a given key k, yields a function f(k); this in turn yields the starting point for a hash search for the key k. (Daintith & Wright, 2008). 15 Brute-force: An attempt to access a computer system [or to solve an algorithm] by the repeated execution of some action. An example is to decipher a message which has undergone encryption by repeatedly trying a large number of keys for decryption (Ince, 2009). 16 Double spending: If a digital [unit] is just information, one could copy and paste it easily and spend it as many times as he or she wants (Wallace, 2011).

17 17 sible resources are exhausted, the supply dwindles. The total supply will level off at 21 million coins around 2030 (P., 2011b). 17 However, in contrast to real resources, there are no as-yet-undiscovered, hidden lode a fortunate prospector can strike to disrupt the money supply (P., 2011b). If in the future a very powerful computer should be introduced to the Bitcoin network, the difficulty to mine further Bitcoins will, as explained, increase in order to keep the rate of approved blocks and new Bitcoins at its predetermined rate. Figure 2, Graphic from: Bitcoin network graphs Source: [last accessed: July 25, 2012] Figure 2 shows that as the amount of computational speed increases in terms of Giga Hashs per second, the average difficulty of the mathematical problem increases. This is because more and more users designated their computational power to the Bitcoin network. This simultaneously means that in the early stages of Bitcoin, as there were only a few supporters of the digital currency, these individuals could easily and quickly 17 See figure 1 Projected Amount of Bitcoins.

18 18 mine a very large number of Bitcoins with their own personal computers. Throughout the short time of existence, as more and more people got interested in Bitcoins, the difficulty has increased significantly. By now most computers would [ ] take on average a year or more to mine just 50 BTC (Grinberg, 2011, p. 167). In fact, there are Bitcoin enthusiasts that have gathered to collectively join their computational power. This will guarantee a higher possibility to solve more mathematical problems and therefore collect more mining rewards. These payments are then distributed amongst the members depending on how much computational power they contribute to the group Offer Commodities or Services Bitcoins can be obtained by offering services or commodities in exchange for units of the digital currency. By doing so, BTCs are used as a medium of exchange where both partners have set up a Bitcoin account and payments in Bitcoin are transferred and verified through the network and its community (P. 2011a). At the moment, most stores or individuals offer their product on a website. Nevertheless, some physical stores accept Bitcoins as a form of payment, e.g. Ottonormalo in Düsseldorf, Germany or Hudson Eatery in New York City, United States of America. 18 Any individual or store owner may choose to accept Bitcoins, and therefore is able to obtain units of the currency, even though he or she does not act as a miner Trading Bitcoins Individuals can also, in addition to mining and offering services and products, obtain Bitcoins by buying units of the digital currency on online exchanges. Mt. Gox is the most popular one with a current market share of 60% exchanging US- American Dollars to Bitcoins, followed by BTC-E with a market share of 7%. In total, 73% of all exchanges involve US- American Dollars to Bitcoins and the second most popular fiat-currency is the Euro with a share of 9% A full list can be found on: and 19 Bitcoin Charts (2012) Exchange volume distribution, bitcoincharts.com, available online: [last accessed: June 19, 2012].

19 Amount of BTC Number of Transactions 19 Every service individually offers an exchange rate; nevertheless all prices are about equal as consumers would quickly take advantage of a better price Bitcoin s Acceptance / Confidence Bitcoin Transactions Transaction Volume Bitcoins in circulation Number of Transactions 10,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, , , , , , , , Time Figure 3, Own graphic Source: Data from & [last accessed: June 19, 2012] It can be concluded from the graphs in figure 3, that even though the total amount of Bitcoins available is increasing, there are less BTCs being transferred. At the same time, however, the number of transactions is increasing. Therefore, the average amount of Bitcoins being transferred per transaction is decreasing. This might be an indicator that there are more users 21 that just want to try Bitcoin as a currency for the first time, but they do not use it repeatedly over a longer period of time. Taking the findings of the graphic into consideration, it can be concluded that Bitcoin has a lack of confidence among its users. The existent user community generates an increasing number of transactions, but the transaction 20 See section 3.1 Exchange Rate. 21 It is impossible to gather the total numbers of active Bitcoin users as there are several different independent hosts. One statistic showing the steadily increasing number of registrations on the e- wallet service My Wallet can be found here:

20 20 volume continues to stay at a low degree, despite the fact that more and more Bitcoins are available. Like almost anything in which individuals can invest their money, Bitcoin is probably susceptible to irrational bubbles and also irrational or rational loss of confidence, which would collapse demand relative to supply. [ ] [C]onfidence might collapse in Bitcoin because of unexpected changes in the inflation rate imposed by the software developers or others, a government crackdown, the creation of superior competing alternative currencies, or a deflationary spiral. Confidence might also collapse because of technical problems: if the anonymity of the system is compromised, if money is lost or stolen, or if hackers or governments are able to prevent any new transactions from settling. (Grinberg, 2011, p. 175) As mentioned, there is only a small amount of stores available that accept Bitcoins as a form of payment. This limited number results in a low acceptance among Bitcoin users and even among potential users that do not see an advantage in using Bitcoin as a currency over normal monies. 3 Value of Bitcoins Calhoun (2002) explains that there are different kinds of values in classical economics. Economists distinguish among use value [ ], exchange value [ ], and labor value [ ]. There are different ways of how to analyze the value of money. This dissertation introduces each theory by giving one of several definitions and moreover, the value of BTC will be analyzed through this point of view. Hayek (1990) states that [m]oney is valued because, [ ] it is known to be scarce, and is for this reason likely to be accepted at the going value by others (p. 112). Therefore, the scarcity of a currency provides its value because not everyone can have as much of it as one wants. The more people want to possess a certain scarce item, the higher it will be valued. Hayek says throughout his book, that it should be the main goal of any money issuer to keep the value of a currency stable. Nevertheless he explains that, there is no such thing as a perfectly stable

21 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 1 BTC equals 21 value of money or of anything else (p. 69). He is of the opinion that value is a relationship, expressing a rate of equivalence which can be stated only by naming the quantity of one object that is valued equally with the equivalent quantity of another object (p. 70 / 71). This leads to an analysis of the exchange rate of a currency over a longer period of time. Furthermore, Hayek explains that the value of a currency is not the only factor individuals bear in mind when deciding on borrowing or buying it (p. 59). Nevertheless, the expected value of a currency is a crucial number for the public because they will hold onto their assets and the issuing bank will soon discover that the desire of the public to hold its currency will be the essential circumstance on which its value depends (p. 59). Taking all of this into consideration, a bank needs to examine the rates of exchange when analyzing the effects of changes in money circulation (p. 60). 3.1 Exchange Rate Exchange Rate of BTC on Mt. Gox $ Time Figure 4, Own graphic Source: Data from [last accessed: July 25, 2012] The exchange rate expresses how much one unit of a certain currency costs in another currency (Black, Hashimzade & Myles, 2009). A history of the exchange

22 22 rate of Bitcoins can be seen in figure 4. The data is based on the most popular BTC trading service Mt. Gox, which has the highest market share of 60% and therefore is the most representative. 22 Bitcoins can be exchanged for any major currency. The following table states the weighted prices of one Bitcoin in terms of another currency. Currency Abbreviation Price of 1 BTC Australian Dollar AUD 8.50 Canadian Dollar CAD 8.65 Swiss Francs CHF 8.65 Euro EUR 7.3 British Pound GBP 5.63 Japanese Yen JPY US- American Dollar USD 8.56 Table 1: Weighted Exchange Rates of Bitcoin Source: Data from [last accessed: July 25, 2012] Table 1 demonstrates that currently one Bitcoin is worth more than any other major currency. However, the exchange rate has been very volatile throughout its short history. Surowiecki (2011, p. 106) states that true believers in Bitcoin s usefulness prefer to deny that speculation is driving the action in bitcoins. As presented in figure 4 the value of Bitcoin in terms of the exchange rate has been down at a few cents and gone up to a peak of $29.6 in June After a crash, the value continued to decline to approximately $5. Therefore Surowiecki reasons that this evidence shows that speculation determines the value of a currency. Furthermore, media coverage has had an outsized impact (p. 106) on Bitcoin. In April 2011, the magazine Forbes published an article 23 on Bitcoin. 22 See section Trading Bitcoins. 23 See:

23 Number 23 Immediately afterwards the value increased from approximately $1 to $8 as user interest started to rise. The exchange rate continued to increase as more and more media took an interest in the digital currency. After its peak on June 9, 2011, Mt. Gox had to announce that its database was hacked and user information leaked (Grinberg, 2012, p. 30). Of course this had a major impact on the exchange rate and therefore it declined to approximately $2 by November Value Theories Subjective Value / Use Value The subjective theory of value explains that a unit of a product has value because people agree on this fact commonly. The degree of value is determined by the people and their willingness to pay a certain amount for the item (Calhoun, 2002). Aron (2011) has come to the conclusion, that Bitcoins have value simply by virtue of the fact that people are willing to accept them as payment for real goods and services (p. 23). As mentioned in the preceding sections, one may exchange Dollars or Euros for BTC, and by doing so, people see value in a unit of that digital currency. Aron is of the opinion that as the Bitcoin economy continues to grow, so will the value of each Bitcoin. This is caused by the principle that there are more people demanding the currency. In addition, the number of stores that accept the virtual currency is rising, therefore, according to the theory, the use value of Bitcoin is increasing Number of Stores Accepting Bitcoin Time Figure 5, Own graphic 24 Source: Data from 24 The data represents an approximation as there is no actual data available. The number of stores was counted on the last log of each month of the revision history.

24 Labor Value The highly-discussed labor theory of value essentially describes the value of an item by the amount of human effort invested in its production (Calhoun, 2002). Creating Bitcoins does not require any physical labor, but the mining process mimics virtual labor. It requires resources of computer hardware that mine new Bitcoins by solving mathematical problems. 25 Therefore Bitcoin indeed has value by the definition given. However, it takes the labor theory of value to a different level by requiring not human, but artificial labor Intrinsic Value / Inherent Value This theory refers to [e]thical values or rights that exist as an intrinsic characteristic of a particular thing or class of things simply because of their existence (Park, 2007). Essentially, a unit of Bitcoin does not have any intrinsic value because it is only a piece of data that is saved on a storage device. One cannot exchange this data and receive something with a known inherent value in return for it Conclusion In summary, a unit of Bitcoin has value based upon the model of its use value. People are willing to accept it as a form of payment at a certain degree of value, which relies on the exchange rate. The effort users put into the process of mining new Bitcoins helps to keep the peer to peer network running, but it is not essential for the virtual currency s value. 3.3 Deflationary Spiral Because of Bitcoin s system, there are a lot of critics that point out that the virtual currency will suffer from the same defects as metal-based currencies with finite supply (P., 2011b). According to the author, many economists put at least part of the blame for the severity of the Depression on the strictures of the gold standard, as countries clung to gold and put off stimulus. 25 See section Mining.

25 25 Bitcoin s mining system and the coherent upper limit of number of Bitcoins in existence is supposed to keep a lid on inflation, making it attractive to critics of interventionist monetary policy of the sort practiced since the financial crisis by federal reserve banks (P., 2011a). Nevertheless, this system could cause severe problems in the long run so it is to be questioned if the predetermined rate of money creation does make sense. Critics argue that it will cause deflation 26 because the demand for Bitcoins might grow at a faster rate than new units of the currency can be mined. The author reasons that the volatility of the currency is largely down to the fact that it remains illiquid. Grinberg (2011) summarizes that Bitcoins will become more valuable over time as the supply of government-backed fiat currencies continue to increase (p. 178). During this process, prices for products and services denominated in Bitcoins will fall because of the ongoing deflation. This process will continue with producers lowering production which will lead to lower wages at stores that use Bitcoin as their main currency. The vicious circle continues by a lower demand because of lower wages and this will eventually decrease prices even more. The end result of such a spiral is underemployed human capital and other means of production and destruction of wealth. Thus, industries using Bitcoin that fall into such a spiral may decide to abandon Bitcoin. Even the possibility of such a spiral may limit Bitcoin s reach. Bitcoin might undergo a deflationary spiral that causes certain individuals or industries to abandon Bitcoin, possibly causing a panic or just a permanent depression in Bitcoin s value. (Grinberg, 2011, p. 178 / 179) This process will have another effect: As the prices for goods continue to fall and the value of each Bitcoin is increasing, users of the community are reluctant to spend their assets because they will be able to buy more goods and services for it in the future. Paul Krugman, Nobel Prize winning economist, stated that what we want from a monetary system isn t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And 26 Deflation: Deflation causes falling prices and rise in the value of a currency, accompanied by a decline in output and employment. Usually it occurs during longer period of times of depression or recession (McLean & McMillan, 2009).

26 26 that s not at all what is happening in Bitcoin. 27 Therefore Bitcoin has to overcome several difficulties if it wants to be seen as an alternative currency: Bitcoin should not be viewed as an investment with which one is able to make money over time, but as system that allows financial transactions and acts as a potential monetary system. Essentially, it should be seen as a currency and be used by people, who do not hold on to their assets in order to make a fortune of it because successful currencies are used to transact day-to-day business and lubricate commerce (Surowiecki, 2011, p. 160 / 107). Grinberg (2012) is of a different opinion because he does not question the existence of a deflationary spiral in the system of Bitcoin, but its effects. First of all, nobody has ever stated that Bitcoin is supposed to be a fully liquid currency which is only used to buy and sell services, and therefore act as a form of payment. He continues that the proper use of Bitcoins could be as an asset or as some form of currency-hedging mechanism (p. 31). Moreover, it has not been proven if Krugman s argument is true for currencies that exist next to traditional currencies that have a pre-targeted inflation rate. The near future will show if the existence of Bitcoin next to the US- Dollar and the Euro is a case of bad money drives away the good money out of circulation Legal Issues Naturally, legal issues are a major concern for all Bitcoin enthusiasts because the digital currency is not considered as a legal tender. Grinberg (2011) has analyzed the legality from the US- American point of view in detail (p ). He summarizes that if the system would really take off, governments around the world will most likely not allow the continued existence of an anonymous and nontaxable currency. He argues that Bitcoin is operating in a legal grey area because as for right now, there are no precise laws that either allow or forbid the existence of such a currency. As the federal government has a monopoly on issuing units of a currency, the system of Bitcoin is not in the interest of the government because of its digital na- 27 See: 28 See: Gresham s Law.

27 27 ture. Because of its decentralized and anonymous set-up, Bitcoin would be the perfect currency for fraud such as tax evasion, money laundering, or banking without a charter. As of right now, Bitcoin exchanges are subject to the same regulations as ones trading commodities (P., 2011a). This means that an exchange service has to report any transaction of a value above $15,000. With this law in place, the government tries to minimize the impact of money laundering. Nevertheless, the Bitcoin community is waiting on precise laws that either allow or forbid the existence of Bitcoin. However, it can be concluded, that it will be difficult to completely shut down Bitcoin because of its digital nature. Some countries may take advantage of other countries that forbid digital currencies by allowing the existence of virtual currencies. Additionally, Bitcoins can be traded in invisible webs even if governments declare the currency to be illegal Is Bitcoin Money? Hayek (1990) defines money as a medium of exchange. Based on this definition, he reasons that there can be several kinds of money that can be accepted within a given community (p. 55). He states that such a medium of exchange has four kinds of uses [ ] that would chiefly affect the choice among available kinds of currency: its use, first for cash purchases of commodities and services, second, for holding reserves for future needs, third, in contracts for deferred payments, and finally, as a unit of account, especially in keeping books (p. 67). One may differentiate the different types of money by their acceptability or liquidity and their expected behavior of their value regarding the stability. An important feature of any kind of currency is scarcity because that is a major reason why it receives value. And any money which is voluntarily used only because it is trusted to be kept scarce by the issuer, and which will be held by people only so long as the issuer justifies that trust, will increasingly confirm its acceptability at the established value (p. 112). Because of the given definition and the attributes of money, it follows that anything can be used as a currency like raw materials, books, or carrots. 29 Invisible webs: Portion of the World Wide Web that cannot be accessed through the use of search engines (Doyle, 2011).

28 28 However, there are more features that are vital for the success of a currency such as fungibility, fairness, security and convenience. According to the author the item that best serves all of these attributes will be chosen as a currency. Hayek (1990) continues that one generally assumes that there is a sharp line of distinction between what is money and what is not and the law generally tries to make such a distinction so far as the causal effects of monetary events are concerned, there is no such clear difference (p. 56). People seem to be of the opinion that there must be a legal tender, as if this notion proved the necessity for a single government-issued money believed indispensable for the daily conduct of business (p. 36). The author differentiates with this opinion and he reasons that the superstition that it is necessary for government [ ] to declare what is to be money, as if it had created the money which could not exist without it, probably originated in the naive belief that such a tool as money must have been invented and given to us by some original inventor (p. 37). He states that there can be and even have been currencies, which have been satisfactory without any influence of control of the government. Nevertheless, these currencies were not legal for a longer period of time (p. 38). Given this definition, Bitcoin clearly is a kind of money that has value and is accepted as a form of payment and a medium of exchange among its users. Currently, Bitcoin is not considered as a form of legal tender by governments and therefore still exists in a legal grey area. 30 Usually money systems rely on fiat or commodity based systems. Elias (2011) explains that Bitcoin does not fully meet all of the requirements of either classification because it shares features of both (p. 4). Selgin (2012) qualifies the digital currency as a quasi-commodity currency because it relies on the process of mining and therefore mimics the extraction of commodities. Nevertheless, Bitcoin features some characteristics of fiat money because all Bitcoins that will ever be in existence have no intrinsic value. This is a distinct attribute of fiat currencies because fiat dollar bills are often cited as being intrinsically valuable for their use as a decorative wall covering (Elias, 2011, p. 4). 30 See section 4 Legal Issues.

29 29 6 Hayek s Monetary Policies In his book Denationalisation of Money: The Argument Refined, the author explains his idea of a perfect monetary system. His main principle is the existence of private concurrent currencies issued by private banks. This system would lead to a co-existence of several currencies in one country or in a certain area. Hayek is of the opinion that competition in monetary systems 31 leads towards more stable currencies as a positive outcome. In order to do so, no currency should be offered by a government or central bank and therefore the monetary system would be completely decentralized and denationalized. Bernholz (1978, p ) draws four conclusions from Hayek s book: 1. Every private money issuer, i.e. the banks, is willing to keep their own currency at very high quality. 2. That is because there will only be demand for a certain currency, if it is of good quality and stable in its value. If the monetary system was an open market, individuals tend to ask for better currencies rather than ones of low quality and this will eventually lead to the extinction of latter. Therefore any money issuer tries to create a dominant currency. 3. Purchasing power is, next to denomination and stability, one of the major qualities of a currency. Any bank is intent to keep the purchasing power of their currency stable. Hereby Hayek says that it is best to have neither inflation nor deflation at all. 4. In the end, Hayek predicts that there will only be only very few surviving currencies in a large region. All other money issuers have stopped their business because they were not able to compete with the higher-quality currency issuers. 6.1 Competition / Private Currencies Hayek (1990) is of the opinion that we can do much better than gold ever made possible (p. 110). He proposes free enterprises that issue their own money be- 31 Currency competition: Such competition no longer exists, but interest in it revived in the 1970s as high inflation was attributed by some to governments incentives to overissue their currencies to generate additional seigniorage. (Schreft, 2008).

30 30 cause, he argues, governments cannot do better. These free enterprises would come into existence because of an established competition between all institutions that issue monies. In fact, they would provide good money because every money-issuing institution is interested in offering a high quality currency. If they were not capable of doing so, the public would not demand their currency and this would drive the issuer out of business. The issuing banks, guided solely by their striving for gain, would thereby serve the public interest better than any institution has ever done or could do that supposedly aimed at it (p. 101). He measures the quality of a currency by the degree of stability indexed in purchasing power over a long period of time. As it is in any open market, he predicts that there will always be one money issuer that will seize an advantage in order to keep the value of its currency stable by regulating the supply. 32 From Hayek s point of view, this denationalized competition would therefore create better monies. He underlines this argument by the following statement: Money is the one thing competition would not make cheap because its attractiveness rests on it preserving its,dearness (p. 94). The digital currency Bitcoin is in accordance with the ideas of Hayek because it coexists next to all existing major currencies. Therefore it symbolizes a competitor because people have started to use it as a currency instead of the legal tender that is issued by central banks. Furthermore, Bitcoin s software is based upon an open-source license which means that any other individual can use the code of the software and alternate it to his or her own ideas and issue an own digital currency (Cap, 2012, p. 85). This would create another competitor, even one for Bitcoin, which is consistent with the monetary model of Hayek. 6.2 Decentralization As mentioned, Hayek would take all control away from the governments and central banks. His main argument for this action is the fact that this system has caused market. Hence he reasons that this instability is the consequence of the exclusion of the most important regulator of the market mechanism, money, from 32 See section 6.3 Volume.

31 31 itself being regulated by the market process (p. 102). His proposed system would prove to be a more practicable method of achieving all that was hoped from a commodity reserve standard or some other form of tabular standard (p. 48). The mentioned market instability is caused by an overspending of governments because they attempt to stimulate the market and remove unemployment as much as possible (p. 97). Governments have been over-ambitious concerning the degree of stability that is either achievable or even desirable under any conceivable economic order, and that they have unfortunately encouraged political demands concerning the certainty of employment at a hoped-for wage which in the long run no government can satisfy (p. 87). In Hayek s opinion, the core problem is that many policy makers cannot resist the attractiveness of cheap money. This situation puts pressure on any political authority or monopolist known to be capable of making money cheap by issuing more of it (p. 104). Hayek strongly disagrees with the benefits of cheap money because it might cause an excess of investment over saving in the long run (p. 87). Taking all of this into consideration, Bitcoin fits the proposed monetary model because it is completely decentralized and there is no power that will ever possess the opportunity to change this. 6.3 Volume The available supply of a currency is vital for its value because only scare items are higher valued by people (p. 112). The issuer is responsible for the total supply and its control. The issuing bank will have two methods of altering the volume of its currency in circulation: it can sell or buy its currency against other currencies (or securities and possibly some commodities); and it can contract or expand its lending activities. [ ] To assure the assure the constancy of the value of its currency the main consideration would have to be never to increase it beyond the total the public is prepared to hold without increasing expenditure in it so as to drive up prices of commodities

32 32 in terms of it; it must also never reduce its supply below the total the public is prepared to hold without reducing expenditure in it and driving prices down. (Hayek, 1990, p. 59) Bitcoin s setup differs with regard to its volume policies to Hayek s ideas. With Bitcoin, there is neither a bank that can sell or buy its own currency nor one that can alternate the lending activities. The system of Bitcoin includes a predetermined rate of new units being issued. In addition, the creators implemented an upper limit of 21 million BTC that will ever be in existence. Therefore, the Bitcoin community is not capable of controlling the value of its currency by increasing or decreasing the supply of Bitcoins (Grinberg, 2011, p. 163). 6.4 Mining Hayek reasons that money is valued because [ ] it is known to be scarce, and is for this reason likely to be accepted at the going value by others (p. 112). The process of mining new units of Bitcoin at a predetermined rate keeps it supply and total volume scarce. According to Hayek s theory, this is the key reason why Bitcoin has value and Bitcoin users are willing to trade the digital currency for other major currencies. 6.5 Deflation / Inflation Hayek proposes currencies that are stable in value and therefore the value should neither be suspect to inflation nor to deflation. Neither a general increase nor a general decrease of prices appears to be possible in normal circumstances so long as several issuers of different currencies are allowed freely to compete without the interference of government. (p. 95) This theory does not hold for Bitcoin because of several different factors. As it was explained earlier, the value of a Bitcoin and therefore the prices of products and services expressed in the digital currency have alternated heavily throughout its short history. In addition, Bitcoin is, as of right now, allowed to act freely without the interference of government, but it is not suspect to competition of any other privately issued currencies. In fact, Bitcoin will have difficulties with a deflationary spiral in the long-run because the Bitcoin community cannot adjust the

33 33 supply of the currency. 6.6 Hoarding Because of expected deflation, users will hold on to their assets of Bitcoin because they anticipate that each unit will have a higher purchasing power in the future. Hayek goes even further as he takes additional issues into account. People will know that the risk they run in holding [the currency] will be smaller than the risk they run in holding any other good on which they do not possess special information (p. 112). It is difficult to argue that users hoard their Bitcoin assets because they have more information about it. Nevertheless, some users have transferred all their money to Bitcoin because they see an advantage and therefore a lower risk in holding Bitcoins. For example, [ ] Rick Falkvinge, the founder of the Swedish Pirate Party [ ], announced that he would be putting all of his savings into [B]itcoins because (among other reasons) they have increased in value one-thousandfold against the [US] dollar in 14 months (Grinberg, 2012, p. 27). Hayek (1990) reasons that the expected value of a currency will play a major role when people decide to hold a currency: [T]he issuing bank will soon discover that the desire of the public to hold its currency will be the essential circumstance on which its value depends (p. 59). This holds true for Bitcoin. However, Hayek states that the issuing bank needs to ensure the value by continuous adjustments of the quantity [of the currency] in circulation (p. 62). As mentioned, there exists no central authority that is able to control the supply of Bitcoin, which harms the development of its value, according to Hayek s theory. 7 Conclusion Bitcoin, a digital currency introduced in 2008, is based on many different interesting ideas and concepts. Analyzing Hayek s proposals of a perfect monetary system, it becomes clear that the digital currency partially fits his model. Bitcoin represents a form of decentralized money that is not issued by a government or any other central authority. The currency is suspect to competition because it exists in a free banking market. Throughout its short history, Bitcoin has attracted more and more interest in terms of stores accepting it, which indicates that it may be able to compete with other monies in the long run. Thus, people are willing to see

34 34 Bitcoin as a type of money or a medium of exchange that carries value. As of 2012, no government has attempted to take control over the digital currency by enforcing regulations. Thus, the currency can be traded freely without any interference. Nevertheless, most economic issues of the setup of Bitcoin are not in accordance with Hayek s proposed model. Of most importance is the fact that supply of the currency is not regulated in order to guarantee a stable value in terms of purchasing power. This represents a contradiction because Bitcoin is decentralized with no central authority. In order to increase or decrease the volume of a currency, however, there has to be some authority that regulates the supply. It stands to question if all users should be granted this power because then the users might act in their own interest and not in the interest of the currency. The absence of a central bank in Bitcoin s system generates even more difficulties. Usually the existence of a financial intermediary allows lending or borrowing and this is still not possible in Bitcoin. In order to be able to do so, the Bitcoin community would have to create an intermediary or central authority, but this is exactly what the core setup is trying to eliminate. Nevertheless, Bitcoin is a digital currency that allows trading goods and services, especially in virtual markets. Enormous potential can be seen in this field because the decentralized system allows instant and anonymous payments which come with very low or even no transaction fees. The rising number of stores in the Bitcoin world indicates an increase in the interest in the digital currency despite the fact that there are very few units of the money actually being transferred. Most users still see Bitcoin as a form of investment because of its built-in deflation, but in order to be accepted as a currency, Bitcoin needs to overcome the risk of hoarding and users should use it as their money for daily purchases. Thus, the idea of the digital currency is deeply interesting for internet users, but it is not yet ready for playing a major role as a monetary system. It stands to question if Bitcoin was ever designed to be a monetary model because it can be seen as an investment. Another difficulty is that the currency remains illiquid because of the limited number of stores that accept it as a form of payment. If more users were to use the virtual currency for daily purchases, more and more stores would start

35 35 to accept it and this circle would continue over time. Another important issue is its volatile value. As it was shown, the value differed heavily over a period of time. People showed interest in Bitcoin as the value started to rise and lost interest as soon as the value declined. This is another indicator that the virtual currency is seen as investment and not as a currency. Due to its volatile value, Bitcoin cannot be seen as a predictable store of value. Hayek reasons that only a few currencies will survive the competition and it will be the ones that are the most stable in value. Over the last six months, Bitcoin s exchange rate has been at approximately $6, which shows that the value has been somewhat stable over this period of time. Nevertheless, the price of a unit of the virtual currency and all transaction data has to be examined throughout the coming years in order to examine if Bitcoin is still used as an investment or as a currency. In summary, Bitcoin can be seen as an innovative experiment in order to prove if Hayek s proposed monetary system would be better than the existing ones. Hayek s monetary model has never been in existence in the real world. However, the future will show if Bitcoin will be one of the dominating digital currencies in the virtual world and maybe even in the real world. The virtual currency contains fascinating features, but currently they do not top the qualities of traditional currencies.

36 8 Bibliography Aron, J. (April 6, 2011). Virtual money gets real. New Scientist, 10 (2815), Bernholz, P. (March, 1978). Hayek F.A.: Denationalisation of Money. Kyklos - International Review for Social Sciences, 31 (1), Black, J., Hashimzade, N. & Myles, G. (2009). A Dictionary of Economics. Oxford, Oxford University Press. Books, B. (2001). The Oxford Essential Dictionary of the U.S. Military. Oxford, Oxford University Press. Cagan, P. (2008). In: S. N. Durlauf, L. E. Blume The New Palgrave Dictionary of Economics, 2nd edition, New York City: Palgrave Macmilan. Calhoun, C. (2002). Dictionary of the Social Sciences. Oxford, Oxford University Press. Cap, C. H. (2012). Bitcoin - das Open-Source-Geld. HMD - Praxis der Wirtschaftsinformatik, 283, Daintith, E. J. & Wright, E. (2008). A Dictionary of Computing.Oxford, Oxford University Press. Doyle, C. (2011) A Dictionary of Marketing. Oxford, Oxford University Press. Elias, M. (October 3, 2011). Bitcoin: Tempering the Digital Ring of Gyges or Implausible Pecuniary Privacy by Matthew Elias, Working Paper University of Mississippi School of Law Ferris, J. S. & Galbraith, J. A. (June, 2006). On Hayek's denationalization of money, free banking and inflation targeting. European Journal of the History of Economic Thought, 13 (2), Fox, L. S., Alvarez, S. G., Braunstein, S., Emerson, M. M. & Johnson, J. J. (2005). The Federal Reserve System: Purposes & Functions, 9th Edition. Washington D.C.: Board of Governors of the Federal Reserve System.

37 Goldfinger, C. (2002). Intangible Economy and Electronic Money. In: The Future of Money (pp ). Paris: Organisation for Economic Co-Operation and Development. Grinberg, R. (December 9, 2011). Bitcoin: An Innovative Alternative Digital Currency. Hastings Science & Technology Law Journal, 4, Grinberg, R. (January 2012). bitcoin. The Milken Institute Review - A Journal of Economic Policy, Hayek, F. A. (1990). Denationalisation of money: the argument refined - An analysis of the theory and practice of concurrent currencies. London: The Institute of Economic Affairs. Third edition. Ince, D. (2009). A Dictionary of the Internet. Oxford, Oxford University Press. McLean, E. I. & McMilland, A. (2009). The Concise Oxford Dictionary of Politics. Oxford, Oxford University Press. Miller, R., Michalski, W. & Stevens, B. (2002). The Future of Money. In: The Future of Money (pp ). Paris: Organisation for Economic Co-Operation and Development. Park, C. (2007). A Dictionary of Environment and Conservation. Oxford, Oxford University Press. P., J. (June 13, 2011 a) Virtual Currency: Bits and Bob. The Economist, Retrieved May 14, 2012 from P., J. (June 16, 2011 b). Digital currencies: bits and bobs. The Economist, Retrieved May 17, 2012 from Schreft, S. L. (2008). In: S. N. Durlauf, L. E. Blume The New Palgrave Dictionary of Economics, 2nd edition, New York City: Palgrave Macmilan. Selgin, G. (February 6, 2012). Quasi-Commodity Money by George Selgin, Working Paper University of Georgia, Department of Economics

38 Surowiecki, J. (September 2011). Cryptocurrency. Technology Review, 114 (5), Tumin, Z. (2002). The Future Technology of Money. In The Future of Money (pp ). Paris: Organisation for Economic Co-Operation and Development. Wallace, B. (December, 2011). The Rise and Fall Of Bitcoin. Wired, 19 (12).